ECI Narrows Q1 Loss, Names Chair

PETAH TIKVA, Israel -- ECI Telecom Ltd. (Nasdaq: ECIL - News) today announced consolidated results of operations for the first quarter ended March 31, 2003.

Revenues for the first quarter of 2003 were $118.7 million compared to $149.2 million in the fourth quarter of 2002 and $175.4 million recorded in the first quarter of 2002. Gross profit was $48.7 million, or 41.0% of revenues, compared to gross profit of $67.0 million or 44.9% in the fourth quarter of 2002 and $64.0 million, or 36.5% of revenues in the first quarter of 2002. Operating expenses were $54.2 million compared to $69.9 million in the fourth quarter of 2002 and $68.6 million in the first quarter of last year. The operating loss for the first quarter of 2003 was $5.6 million compared to an operating loss of $2.9 million in the fourth quarter of 2002 and $4.6 million in the first quarter of last year. The net loss was $7.8 million, or $0.07 per share compared to a net loss of $7.0 million or $0.06 per share in the fourth quarter of 2002 and a net loss of $52.1 million, or $0.52 per share for the first quarter of last year.

First quarter 2003 results include a loss from discontinued operations of $2.1 million, while first quarter 2002 results include a $51.4 million loss from discontinued operations, impairment of related goodwill, and the cumulative effect of an accounting change, net of tax. Fourth quarter 2002 results include a $1.5 million provision for impairment of assets and a $2.3 million loss from discontinued operations.

During the quarter, the Company continued to generate positive cash flow from operations. At the end of the quarter, cash, cash equivalents, short-term investments and deposits exceeded bank debt by $150 million compared to $133 million at the end of the fourth quarter. Inventories and trade receivables declined and the Company repaid another $47 million of bank debt included as short term bank debt on our balance sheet.

The Inovia Broadband Access Division recorded revenues of $50.8 million compared to $52.0 million in the fourth quarter of 2002 and $67.5 million in the first quarter of last year. Operating income rose to $5.6 million compared to $1.8 million in the fourth quarter of last year and $0.3 million in the first quarter of last year due to improved gross margins as well as lower operating expenses. The Division started a pilot project for fiber to the curb at a major European carrier and received an initial order from a large Latin American Carrier. It also began commercial deployment of its miniRAM, small footprint DSLAM.

The Lightscape Optical Network Division (which includes Enavis) recorded revenues of $42.4 million compared to $51.7 million in the fourth quarter of last year and $64.0 million in the first quarter of last year. The operating loss was $6.3 million compared to an operating loss of $8.6 million in the fourth quarter of 2002 and an operating loss of $2.2 million in the first quarter last year. The Division's results reflect the continuing weakness in the optical networks market. During the quarter the Division was awarded a $5.7 million contract from Globe Telecom in the Philippines. The contract is noteworthy in that it includes both the XDM and the T::DAX platforms. The Division also received follow-on orders from a North American carrier whose initial order was received in the fourth quarter of 2002. Lightscape Optical Networks Division is shipping version 3 of the XDM MSPP which includes Gigabit Ethernet interfaces and enhanced SONET support.

Other Businesses
ECtel (NASDAQ: ECTX - News), in which ECI held a 59% stake as of March 31, 2003, reported first quarter results on April 30, 2003. ECtel reported revenues of $15.2 million compared to $24.1 million in the fourth quarter of 2002 and $23.1 million in the first quarter of 2002. Its net loss was $3.8 million compared to a net profit of $4.4 million in the fourth quarter of 2002 and $4.1 million for the first quarter of last year. ECtel experienced a significant decline in revenues particularly in Asia as well as generally in the government sector. ECtel stated its belief that uncertain geopolitical conditions during the quarter contributed to the decline.

Sales to Veraz Networks totaled $8.7 million. As previously announced, ECI's NGTS subsidiary was spun off on December 31, 2002 and combined with NexVerse Networks to form privately held Veraz Networks of which ECI holds 43%. ECI manufactures and sells DCME (digital circuit multiplication equipment) and Voice over IP products to Veraz for resale.

Just after the close of the quarter, ECI reported that it had completed the sale of its InnoWave subsidiary to Alvarion Networks for total consideration of over $20 million. InnoWave's results are included this quarter for the last time and shown as "discontinued operations."

Commenting, Doron Inbar, President and CEO said, "Revenues from our core businesses were in line with our expectations, despite the continuing weakness in the telecommunications industry. We were particularly pleased with the results at our Inovia Broadband Access Division which was able to record strong operating profits as a result of improved gross margins and reduced operating expenses. These improvements compensated somewhat for the shortfall at ECtel. Our total revenues were also affected by the impact of the previously described spinoff of our NGTS subsidiary which combined with NexVerse to form Veraz Networks.

"We have achieved our target of exiting non-core activities and are now clearly focused on our two primary business areas: Broadband Access and Optical Networks, two areas which we believe hold strong long term potential for us. We continue to maintain a strategy of financial prudence as we reduce operating expenses and continue to generate positive cash flow. At the same time, an important part of our strategy is our continued investments in R&D and the expansion of our market presence. We believe these investments will allow us to emerge from the industry crisis as a stronger and better positioned Company."

In a separate release:

ECI Telecom Ltd. (Nasdaq: ECIL - News) announced today that David Ball has stepped down as chairman of the Board of ECI Telecom.

Shlomo Dovrat, the former Vice Chairman, has been named Chairman of the Board and Krish Prabhu, currently a U.S.- based director and former CEO of Alcatel U.S., becomes Vice Chairman. Krish Prabhu and Colin Green are joining the Executive Committee of the Board. David Ball will remain with the Company as an advisor to the Board.

Commenting, David Ball said: "We have accomplished most of the goals we set for ECI when I was appointed as Chairman in December 2001. However, the next phase of the company's development needs a more hands on approach in both Israel and the USA which, because I am based in the U.K., I cannot provide. These changes to the Board will answer this need.

"Our overall position has improved considerably since I was appointed: we have a clear, focused and deliverable strategy and the Company has made excellent progress in internationalizing itself through an active and effective board. We have completed the business disposals necessary to allow the Company to focus on its core businesses and the internal reorganization and transformation necessary to deliver the strategy. Perhaps most important in the current environment, we have built a strong balance sheet and enjoy positive cash flow. I am pleased with our comparative competitor performance in what has been and continues to be a difficult market. I am also pleased with our customer's view of ECI: its technology, responsiveness and product reliability. It is therefore an appropriate time to hand over the Chairmanship to Shlomo Dovrat. I will continue to work for the success of the business as advisor to the board and I look forward to continuing progress."

Shlomo Dovrat said, "David has made a substantial and valuable contribution to ECI's progress over the last 18 months. His leadership and experience were key factors in putting ECI on a new path and we greatly appreciate his role. I hope to continue these efforts and, together with Krish, Colin and the rest of the board, will continue to work with the capable management of ECI in order to develop a truly world class company. We will focus on regenerating growth despite the challenging environment, by concentrating on our core businesses, developing leading edge products, entering new markets and pursuing new opportunities. ECI's loyal and supportive customer base and outstanding employees give me confidence that we can succeed."

Shlomo Dovrat joined the board in December 2001. He is a veteran industrialist and the founder of several companies that have traded on NASDAQ. He is currently Co-Founder and General Partner at Carmel Ventures, a prominent Israeli venture capital fund.

Krish Prabhu, appointed as a director in June 2002, is a recognized expert and a 20+ year veteran of the telecommunications industry. He was Chief Operating Officer of Alcatel and CEO of Alcatel USA. Prior to Alcatel, Prabhu was head of research and development at Rockwell International's Network Systems Transmission Division.

Colin Green, who joined the board in June 2002, has held senior positions with British Telecom including Group Commercial Director and Secretary and Chief Legal Advisor and was a member of BT's principal committees, (including BT's Executive Committee, Investment Committee and its Strategy and performance review committee).

During the first quarter of 2003 ECI welcomed Yocheved (Yochi) Dvir to its Board of Directors. Ms. Dvir will serve as Chairperson of the Company's Audit Committee. She has been a senior executive at the Migdal Group, one of Israel's foremost insurance groups, and serves on the boards of several other Israeli companies

ECI Telecom Ltd.